Taylor Capital forced to tack

With its real estate construction loan portfolio gone sour, Taylor Capital Group Inc. is hiring new talent in a bid to remake itself as a commercial and industrial lender.

At the end of the first quarter, Rosemont-based Taylor reported $75.4 million in real estate construction loans as non-performing, contributing to an overall ratio of non-performing assets to total assets of 2.97%, up from 0.85% a year earlier. A survey of 83 peer banks nationwide by Howe Barnes Hoefer & Arnett in Chicago found an average ratio of 1.39%.

In an interview after the June 12 annual meeting, Chairman and CEO Bruce W. Taylor said the "majority of the problems in our portfolio are related to five different home builders, all involved in Illinois projects. The non-performing ratio is higher than it has been historically, and we're focused on working through this situation."

Mr. Taylor's strategy is to concentrate on lending to manufacturers and other small and medium-sized businesses. To attack that market, in the past three months he has hired away a team of commercial lenders from rival LaSalle Bank following its acquisition by Bank of America Corp.

There are at least 35 new hires so far, led by Mark A. Hoppe, 53, now president of Taylor Capital, and Lawrence G. Ryan, 49, the new executive vice-president of commercial banking, who was a senior vice-president in LaSalle's metropolitan banking group.

"We want a bigger share of the commercial and industrial market. With these staff additions, we've doubled the size of our commercial banking group, and we're now prepared to go after that market in a more serious way," Mr. Taylor said.

Short term, however, the added salaries and bonuses will put additional pressure on margins. In the first quarter, Taylor reported a net loss of $3.8 million, or 37 cents per diluted share, compared with a year-earlier profit of $5.3 million, or 48 cents per share. Its net interest margin, a key banking metric, shrunk to 2.95% from 3.47% a year earlier. Among peer banks, the average is 3.75%.

Howe Barnes analyst Brian Martin believes Taylor's stock, which had sunk below $6 last week, has been beaten down too far. The shares are trading at one-third of the $23.71 tangible book value. Nationally, Mr. Martin says, all banks trade at an average of 40% above book value. He rates Taylor's shares a "buy."

"The stock is obviously heavily discounted. But we don't think the credit problems will erode much more from here," Mr. Martin said.

After a $23.2-million writedown of goodwill last year, Taylor Capital reported a loss of $9.6 million, or 89 cents per share, compared with a year-earlier profit of $46.2 million, or $4.15 per share.